Is there a gender difference in the basic skills of workers and in the return on those skills in Israel?
- An analysis of PIAAC survey data shows that the basic numeracy skills (grasp of basic mathematics) of male workers are higher than those of female workers. There is no significant gap in literacy skills.
- Men’s hourly wages are 26.3 percent higher, on average, than women’s. The gap in the skills level explains only about 15 percent (about 4 percentage points) of the wage gap.
- The increase in wages as a result of an increase in skills (return on skills) for men is higher than for women, and explains some of the mechanism by which the gender wage gap is created.
- The gender gap in the return on skills is reflected mainly in the business sector and among full-time workers.
- The rate of men employed as senior managers or as IT workers is significantly higher than that of women. The gap in favor of men in the return on skills in these occupations is double the gap among non-managers and workers in the professions and other industries.
In all advanced economies, there is a significant gap between men and women, in favor of the men, in monthly wages and in hourly wages. This finding holds even after taking into account the observed characteristics of the workers, such as education, age, experience and demographic characteristics. An analysis carried out by the Bank of Israel Research Department examines whether the gender gaps in skills can explain the part of the wage gap that is not explained by the observed characteristics, and whether there is a gender difference in the return on skills—the increase in wages as a result of increased skills.
Adults (aged 16–64) in Israel were recently surveyed as part of an international project: the PIAAC skills survey. In addition to the observed characteristics examined in the past (wages, work hours, education, age, and others), the survey also examined the informal skills of workers—their basic skills. These skills were divided into three categories: literacy, numeracy, and problem solving in a technological environment. The subjects were tested in a language they were familiar with, and their skill level was derived from these tests.
This study found that gender gaps in basic skills explain just a small part of the wage gaps between men and women, and that a significant portion of the wage gaps reflects a higher return on skills for men at all skill levels.
It is important to note that the gender wage gaps do not necessarily show wage discrimination in favor of men, just as explaining wage gaps through various variables does not show a lack of discrimination. Discrimination is one possible explanation, but there are other factors discussed in the literature that are not measured in various studies and that may lead to gender wage gaps. For instance, men tend more, on average, to take risks, negotiate more over wages, and are less reluctant to work in a competitive environment.
Studies both globally and in Israel have shown a positive correlation between workers’ basic skill level and wages. This study examined whether, and to what extent, the unexplained gap in hourly wages between men and women can be attributed to (a) the gender gap in basic skills; (b) the gap in the return on skills, meaning the difference between the increase in wages for me and the increase for women as a result of an identical increase in their skills; and (c) factors that are not dependent on skills.
According to data from the skills survey, the hourly wage gap between men and women that is not explained by the common characteristics—age, level of education (regardless of the area of study), and population segment (Arabs, ultra-Orthodox)—is about 26.3 percent. When the effect of numeracy skills—where the gap between men and women is the greatest—is taken into account, the unexplained wage gap declines to 22.4 percent. Taking into account gaps in literacy skills, where the gap between men and women is smaller, does not contribute to explaining the wage gap. The results also remained in place when the analysis was carried out separately regarding the non-ultra-Orthodox Jewish population, regarding workers in the public and business sectors, and regarding older and younger workers.
Many studies both in Israel and abroad indicate a prominent gender polarization in the choice of places of work, some of which is derived from the high school matriculation track and reflected in the choice of profession and employment industry. For instance, male teenagers tend more to matriculate in sciences and then to work in workplaces typified by high wages and long work hours, such as the high-tech industry. In contrast, women tend more to choose professions in the humanities, and to work in the public sector, which is characterized by shorter work hours and more convenient and flexible work conditions than in the business sector.
When the mix of professions is taken into account, the unexplained gap in hourly wages between men and women shrinks from 26.3 percent to 18.8 percent, and when both professions and employment industries are taking into account, the unexplained gap shrinks to 15.2 percent. If the numeracy skills of the workers are added to these regressions, the unexplained gap in hourly wages declines to 17.3 percent and 14.0 percent, respectively. In other words, when taking professions and employment industries into account, the gap between men and women in numeracy skills explains an even smaller amount of the gap in hourly wages, because the choice of profession and of employment industry is consistent with the workers’ skills.
If we focus the analysis on workers in the high technology industries, engineers, scientists and senior managers—a group where the rate of men is significantly higher than that of women—we find that adding the skills variable contributes to explaining the gap in hourly wages between men and women both in this group and among other workers. However, among high-tech workers, the addition of this variable reduces the wage gap more (by about 22 percent for IT workers compared with 9 percent for the rest of the economy), both because the gender gap in the level of numeracy skills is higher among IT workers, and because the wage return on this skill is double in these industries. This is over and above the effect of the gap in the return on skills derived from the fact that men have a greater tendency to work in industries and professions of this type, where the return on skills is higher.
Another finding is that among all employees in the economy, men have a higher return on skills than women. In other words, the wage increase for men due to an increase in skills is higher than for women. Based on the results of the estimation, Figure 1 shows an index of the hourly wages of men and women as a function of their basic skills percentile. The Figure shows that in almost the entire skills range, given the workers’ other characteristics, the wages of men are higher than for women. Since the return on skills in terms of wages is higher for men, the wage gap increases as the workers’ skill level increases, to a gap of about 30 percent at the highest skill level.